Taxation without explanation: How the refund of an illegal regressive tax makes it even more regressive.

I'm not anti-tax or even anti-government or anti-IRS, but my recent exploration of the procedure for refunding the federal excise tax on telephone service left me feeling angry. Why is an administration run by a President who has such professed hatred of taxes not seizing this opportunity to proactively send out checks to taxpayers, the way he did early in his administration when he slammed record tax cuts through Congress?

The IRS is calling this the "Telephone Excise Tax Refund," or TETR for short. Perhaps the administration's Iraq policy, which is teetering on the brink of collapse, is sucking up all the planning bandwidth that otherwise might go into a phased withdrawal of treasury funds back into the pockets of consumers.

TETR applies to "long distance" service. It does not apply to the federal excise tax on local land-line telephone service. Efforts to repeal that tax continue in Congress.

TETR came about after a recent, but long, court battle that resulted in the IRS conceding that the excise tax was being illegally collected. As part of this, the IRS agreed to refund the tax for the past three-year period in which taxpayers could still legally amend their returns.

TETR is the legacy of a luxury tax that had been intended to pay for an earlier war: the Spanish-American War in 1898. (Telephones were only used by the rich at that time.) That war was back in the day when Presidents were expected to pay for wars by raising taxes. It was considered unmanly and cowardly to put the political burden of raising taxes on one's successors. (Now, such behavior is considered politically clever - a sure sign of societal moral decay.) Politics was much simpler then; before that war no one had used film as a propaganda tool.

Today, telephone service is considered a basic part of daily life and not a luxury. Particularly for poor people who live in high crime or remote areas, it can be a life-line. Yet, there are people in the U.S. who cannot afford to have a telephone - a reminder that although technological advancements grow more affordable, the economic gulf between the rich and the poor is growing larger. A tax on such a vital service particularly hurts poor people.

For small businesses, the IRS worked with accountants and the business lobby to create a formula for estimating their TETR. Businesses just have to grab a phone bill from before the tax was repealed, and compare the tax they paid to what they paid on a bill from after the repeal. The difference in the tax as a percentage of the total bill can then be multiplied by the total amount of their phone bills during the 41 month refund period for which refunds are allowed, and viola! That estimated amount comes directly off their tax bill or with creative accounting, into their coffers as a tax refund.

Consumers, on the other hand, have no such luck. They either have to take a standard refund amount of between $30 and $60, depending on the number of dependents they can claim, or have to find every single bill from the 41 month period and list the actual tax from each bill on IRS Form 8913. One estimate says that 99% of consumers having their old bills would be eligible for three times as much of a refund as the standard refund amount. Why don't consumers get a break like business does? Why can't consumers compare a bill from before the tax repeal with one after and then apply a percentage to what they paid for phone service during the 41 months? People who don't know where their phone bills are probably have a checkbook or bank records that show monthly payments to their phone and wireless providers. At least AT&T has stepped up and will provide customers online access to their old phone bills. Hopefully, other companies will follow that lead, although Verizon has already said it will not provide free access.

This completes the circle of regressive taxation. Most of the people who can least afford to pay this tax are not going to get most of it back. People who are too poor to pay taxes will only get their $30 if they take the time and trouble to file a tax return. Businesses, who have lobbyists and accountants pushing for their interests, will receive complete refunds.

There is one more infuriating wrinkle. The IRS form 8913 instructions are confusing to consumers. Much of the text is devoted to the business formula that consumers cannot use. It talks about bundled services and mentions wireless as being part of that category, but does not make it clear that cell phone users have been subject to the excise tax and can list the tax amount from their bills on the form. Millions of cell phone users probably won't realize they are entitled to more than the TETR standard refund amount. That's just anti-democratic.